The FICO credit scoring system has a strong reputation within the finance industry. In August 2014, the FICO 9 credit bureau risk score appeared. There are a number of points that have slipped under the radar as blogs rave about the new system. If you want to fully understand it, read on to find out more.
Not a Single Score
The FICO 9 score is actually a number of scores. There are four different types of score created by the company. You have the conventional score, the auto score, FICO Bankcard, and FICO Mortgage. Each credit bureau gets a new set of scores with each redevelopment. This means the FICO 9 score will actually be 12 different scores put together.
Residential Rental History
Experian broke new ground a few years ago by adding residential rental history to every credit score they release. This is fantastic because people who have no credit history can get a credit history simply by paying rent on time. Before FICO 9, FICO scores didnt take this into account. FICO 9 will take it into account.
Release Date Unknown
Despite what a lot of blogs are saying, we have no idea when FICO 9 will become available. At the moment, people are saying it could be anywhere from autumn 2014 to the first quarter of 2015. Remember, FICO doesnt control when their scores will appear on the commercial market. They dont sell their scores. Its the credit bureaus selling the scores, so its up to them as to when they make them available.
Zero Balance Collections
Any zero balance connections will be ignored. It doesnt matter if the collection has been paid, settled, or not. They will be ignored no matter how they got there. It makes no difference how much has been paid or whether its been settled.
Radical Scores Everywhere
Your score will differ radically from the old models FICO used. This is mainly because different things are now taken into account. Understand that someone under FICO 8 may get a similar score on FICO 9, but it should come as no surprise to some people if they get very different scores. Remember, things like zero balance collections have changed and rental payments are now taken into account.
What FICO needs to do is be careful. They have to explain to lenders that FICO 9 is the best score to use, but that other scores under FICO 8 and other earlier systems arent suddenly irrelevant. It cant just admit it was completely wrong about consumer risk levels before. This is the balance FICO has to strike.
Only time will tell how they do this.
What about Ignored Collections?
Ignored collections will appear on the credit report as before. We benefit from the fact that zero balance collections are now ignored, but this isnt the case for ignored collections.
Collections that are still on your credit report will stay there until theyve hit the seven-year reporting limitations. The scoring model will, of course, ignore them when determining your results, but lenders dont have to stick to this. They can still see the ignored collections. This means they may decide to not lend money to you even if you have a higher credit score. And theyre well within their rights to do this.
For lenders, this is extremely beneficial because it gives them more information about the type of borrower you are. It could lead to you getting less advantageous terms, but at the same time people without these collections could find themselves getting even more advantageous terms.
Do you think you are going to benefit from the new FICO 9 scoring system? Your thoughts and comments below please…